The months of August and September showed a dramatic fall in output and activity when compared to July, and with last week’s economic results demonstrating a 0.6% GDP growth for the 3rd quarter of 2018 - there was no surprise the results were greeted with muted responses. And, the most unexpected result to emerge was the 1.2% fall in investment spending which is the largest fall since early 2016.
Although, the growth attained of 0.6% shows an encouraging upsurge when compared to the 0.4% growth achieved in the 2nd quarter it should be viewed alongside the euphoria of England’s performance in the World Cup, and the extremely warm weather experienced in the early summer. Additionally, consumer-driven expenditure remained buoyant in the early stages of the quarter however after-tax incomes still remained flat. This spending surge has distinctly tailed off in latter stages of the quarter with expenditure on domestic large ticket items such as new cars and white goods showing a marked decline.
Forecasters are somewhat pessimistic about UK economic results for the 4th quarter where it is estimated that GDP growth will fall back to 0.3%.
Business investment continues to be sluggish, major business hires are being postponed and order books are weakening. This is against a backdrop of continuing and heightened uncertainty regarding a future trade deal with the EU following Brexit and a worsening global economic momentum caused by the continuing trade war between the US and China. The IMF is scheduled to downgrade its global economic forecasts against this unfavourable backdrop which is not helping emerging markets.
SME manufacturers in the UK are expecting output to dip in the final quarter of 2018 for the first time in 7 years. This position is not helped by an extremely tight labour market with subsequent increased wage inflation and increased employee attrition rates. The availability of the required labour skills continues to present challenges to the manufacturer, and the continued lagging of the UK’s infrastructure to cope with the challenges of an already overstretched road network does not assist local UK manufacturers. When the sector is already facing fluctuating exchange rates and the uncertainty facing the UK following Brexit – is it really a surprise the sector is expecting a dip?
Brexit remains the single largest drag on the sector’s economic growth especially when the UK economy is so ideally placed in terms of low costs of borrowing, low unemployment and a low corporate tax environment.
The 29th March 2019 deadline is fast approaching and business owners need to contemplate the possibility of a no deal Brexit and what this will mean for their manufacturing businesses. Are you a business that relies on foreign imports of raw materials from the EU and would a temporary delay in supply affect your business and its customers? This is particularly relevant to “just in time” buyers. Do you have alternative suppliers of raw material in mind, would this affect costs and ultimately selling prices to customers? Do you build up supplies of inventory in the lead up to 29 March and what impact will this have on working capital management and financing these increases? Have you spoken to your bankers in terms of negotiating additional finance facilities?
The government have released a “Partnership pack: preparing for changes at the UK border after a ‘no deal’ EU exit" to help businesses prepare for a no deal Brexit. Or, should you wish to discuss Brexit proofing your business please contact Rodney Sutton.
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